Opinion

The Millionaires Tax Is a Failure

Opinion

By John Regan

Evidence from states that have imposed a surtax on incomes of more than $1 million shows that the policy causes irreparable harm to the economy while generating far less tax revenue than promised. A millionaires tax will cause the same harm in Massachusetts.

Lawmakers have refiled a proposal to amend the state Constitution to impose a graduated income tax, adding a 4% tax (representing an 80% increase in the personal income-tax rate) on all incomes over $1 million. The amendment would dictate that the revenue be spent on transportation and education.

A graduated income tax would eviscerate the small, family-owned businesses that form the heart of the Massachusetts economy. The surtax would take an estimated $2 billion from some 17,000 Main Street businesses and others that pay taxes at the individual rate and who would otherwise use the money to hire additional employers or expand their companies.

These companies are already drowning in more than $1.5 billion in new taxes and fees to pay for a financial shortfall in the Medicaid program and to fund the new paid family and medical leave program.

How do we know that surtaxes don’t work? Because our neighbors in Connecticut just drove their economy off a cliff by raising taxes three times in the past 10 years. Connecticut in 2009 added a 6.5% income-tax bracket for those earning more than $500,000 per year. The state followed up with a comprehensive $1.5 billion tax increase in 2011 to deal with a budget shortfall. A final round of tax increases took effect in 2015.

A graduated income tax would eviscerate the small, family-owned businesses that form the heart of the Massachusetts economy. The surtax would take an estimated $2 billion from some 17,000 Main Street businesses and others that pay taxes at the individual rate and who would otherwise use the money to hire additional employers or expand their companies.

According to information compiled by Pew Charitable Trusts, tax revenue for all 50 states is averaging 6.3% higher than it was at the start of the 2008 recession. Connecticut tax revenue, on the other hand, is only 3.8% higher, despite the three tax increases.

Once the economic heavyweight of New England, Connecticut is the only state in the nation which has yet to recover the jobs lost during the economic downturn. In addition, the state has seen an outmigration of residents since 2013 and the loss of major financial investors. Data from the Internal Revenue Service showed a spike in residents earning more than $200,000 per year leaving the state in 2015, and studies conducted by Connecticut state agencies and commissions have confirmed the loss of higher-income residents to other states.

Income-surtax laws have failed in other states as well. Within three years of Maryland enacting its millionaire tax, 40% of the state’s seven-figure earners were gone from the tax rolls — and so was $1.7 billion from the state tax base.

Similarly, in 2010, Boston College researchers released a report on the migration of wealthy households to and from New Jersey. They concluded that wealthier New Jersey households did in fact consider the high-earner taxes when deciding whether to move to or remain in New Jersey. From 1999 to 2003 — before the millionaires tax was imposed — there was a net influx of $98 billion in household wealth into the state. After the tax was implemented, an increasing number of wealthy families left the state, resulting in a loss of $70 billion in wealth.

Many of the business owners who fled Connecticut, Maryland and New Jersey moved to states that have worked to reduce, rather than boost, taxes, including North Carolina, New Hampshire, Georgia, and Tennessee.

John Regan is executive vice president of Government Affairs for Associated Industries of Massachusetts.

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